New rules from the International Accounting Standards Board (IASB) will come into effect for annual reporting periods beginning on or after January 1, 2024. But how do the IASB rules for IFRS regions differ from the FASB rules that cover US GAAP – and what should treasurers do now to prepare? Ali Ansari, managing director of product at Taulia, shares his views.


Supply chain finance (SCF) can play a vital role in helping buyers improve their working capital position, strengthen their supplier relationships and reduce risk in the supply chain. Suppliers that access supply chain finance can likewise free up working capital while speeding up cash flow and increasing the predictability of their payments.

With working capital increasingly critical for organisations around the world, the use of supply chain finance programmes has further intensified since the pandemic. When Covid hit, suppliers faced a significant challenge in the form of late payments from their customers: a special survey carried out by Taulia in 2020 found that 43% of businesses had seen an increase in receiving late payments. At the same time, 62% of suppliers said they were more interested in requesting early payments to meet their business needs.

While the issue of late customer payments has been alleviated since the pandemic subsided, we have continued to see an uplift in suppliers choosing to access early payments, which can provide critical relief for companies aiming to optimise their working capital. Almost half of the respondents to Taulia’s 2023 supplier survey cited cash flow gaps as a reason for accelerating their receivables, with 26% citing working capital needs.


The need for disclosure

Against this backdrop, scrutiny over supply chain finance programmes has intensified in the last few years. Without formal disclosure requirements, there is an argument that investors may struggle to understand the impact of this type of programme – and pressure has been growing in the industry to address this. In 2019, for example, the Big Four accounting firms asked the Financial Accounting Standards Board (FASB) to provide clarification regarding financial statement disclosures on supply chain finance, arguing that investors need better information in order to make informed business decisions.

As such, both the FASB and International Accounting Standards Board (IASB) have developed new rules to address this shortfall by requiring disclosures for SCF programmes.

While the approaches taken by FASB and IASB have much in common, there are also some notable differences:


FASB Accounting Standards Update

FASB is responsible for establishing generally accepted accounting principles (GAAP) in the US.

In September 2022, FASB issued an Accounting Standards Update (ASU) intended to enhance the transparency around supplier finance programmes. While the new requirements do not provide any new guidelines on the classification of obligations, buyers will be required to provide a range of qualitative and quantitative information about their supply chain finance programmes. This will include the key terms of the programme, such as details of payment terms and the basis for determining the timing of payments.

For relevant obligations, buyers will need to provide information on the amount outstanding that remains unpaid at the end of the annual period, as well as a description of where those obligations are presented in the balance sheet and a roll forward of those obligations during the annual period. Buyers also need to disclose the outstanding confirmed amount at the end of each interim period.

For most companies, disclosure of an existing SCF programme will be required for fiscal years beginning after December 15, 2022.


IASB Supplier Finance Arrangements

The IASB is the independent body that develops and approves International Financial Reporting Standards (IFRS).

Issued on May 25, 2023, the IASB’s new disclosure requirements require companies to make disclosures about their supplier finance arrangements. The rules are intended to improve transparency over supplier finance arrangements, as well as the impact of those arrangements on companies’ liabilities, cash flows and exposure to liquidity risk.

Among the requirements of the new disclosures is the need for companies to provide information about the terms and conditions of supplier finance arrangements, as well as the carrying amounts of financial liabilities that are part of the arrangement at the beginning and end of the reporting period. One significant difference between the new FASB and IASB rules is that under IASB’s requirements, companies also need to detail the carrying amounts of obligations for which suppliers have already received payment.

The IASB changes are due to become effective for annual reporting periods beginning on or after January 1, 2024.

When companies make disclosures on their financial statements, it is easier for auditors to understand and query current practices. As a result of the new disclosure rules, companies will be able to give auditors and accountants the information they need to assess whether certain payment obligations are in need of recharacterisation.


What do the new requirements mean for corporate treasurers?

Together with procurement, corporate treasury often has responsibility for managing supply chain finance programmes within the organisation. Treasurers will therefore have an important role to play in addressing the new requirements.

In the first instance, companies will need to determine which of their programmes are within the scope of the new rules. Other considerations include determining whether companies with multiple supply chain finance programmes can aggregate these programmes for the purposes of disclosure, or whether they will need to be reported separately.

At the same time, the new requirements may provide an opportunity for companies to take stock of their current and planned supply chain finance programmes. This might mean considering whether any improvements should be made to how existing programmes are managed, as well as reviewing how any new programmes will be structured.


The importance of payment terms

When companies introduce a new supply chain finance programme, it’s important that the terms of the programme should be close to the existing terms offered to suppliers. Things like direct debits, guarantees and charges on late payments can all impact the characterisation of payment obligations the company has on its books to its suppliers.

In order to keep those obligations characterised as trade payables, companies should avoid introducing new terms that differ significantly from existing payment obligations. Likewise, by ensuring that their payment terms are within industry norms, companies can make it clearer that they are using supply chain finance as a tool to inject liquidity into their supply chains.

A common misconception regarding supply chain finance is that it is inextricably linked to the practice of extending supplier payment terms. In practice, however, payment terms are just one of a number of items that are negotiated between procurement and the company’s suppliers.

Considerations such as quality of goods, price, order size, timing of delivery and packaging all form part of the discussion.

In other words, the use of SCF doesn’t have any material impact on contract terms that are negotiated between the buyer and supplier.


Role of SCF providers in supporting disclosure

To comply with the new reporting requirements, companies must have access to the relevant data. As such, they should ensure that their SCF providers are capable of providing the necessary information and analytics to meet regulatory compliance.

Companies need to have access to key information at the click of a button, such as:

  • Confirmed obligations
  • Invoices that have been paid during the relevant period
  • The balance of outstanding confirmed obligations at the beginning and end of each period
  • Range of payment terms for suppliers offered SCF vs suppliers not offered SCF
  • Early payment amounts taken by suppliers at relevant period end dates.

With access to the relevant data, companies will be better placed to provide information to their accountants and auditors with minimal effort. In order to avoid a last-minute scramble, companies should check that their providers can supply this information quickly and easily.

Modern solutions like Taulia’s Cash Flow Acceleration platform can play a valuable role in helping companies meet the new disclosure requirements, as the information buyers need is readily available through our dashboards on a self-service basis. As well as providing specific templates, we also enable buyers to choose which data items they want to disclose as part of the key terms of their programmes.

With the right information at their fingertips, companies will be better placed to work with their corporate tax advisors to find out how that information should be applied in order to comply with the new guidelines.